Vietnam has high taxes on luxury goods, especially on automobiles, which make car prices in Vietnam higher than in many ASEAN and Asian countries.For most Vietnamese, cars are unaffordable, and, as stated previously, this has restricted the growth of a local automotive industry.At the same time, taxes applicable to the automotive and auto parts industry are designed to encourage exports and protect local production.This policy is supported by significant corporate tax incentives available to newly established companies, particularly to companies located in investment zones or operating in encouraged sectors.Automotive and auto parts are not included in the list of encouraged investment sectors, but investment projects in the automotive industry may be entitled to tax incentives based on other criteria.
Encouraged investment projects are also entitled to import duty exemptions with regard to the import of fixed assets.
Auto parts imported from ASEAN countries into Vietnam or exported from Vietnam to other ASEAN countries are subject to an import duty of up to 5 percent if they satisfy ASEAN content requirements.
Import duty refunds are available for raw materials used for producing goods for export.An extension of import duty payment is also available to reduce working capital requirements.Beginning in 2007, import duties based on the CKD scheme have been completely removed.Import duties for disassembled parts will apply.
Within seven years of accession to the WTO, import duties applicable to completely built units (CBUs) and parts will be reduced.Import duties on CBUs could be reduced up to 50 percent.Import duty rates applicable to CBUs have been reduced to 80 percent in 2007, and a 5 percent sales price reduction is expected.The quota for second-hand CBU imports will also be gradually removed.WTO valuation principles are now implemented, instead of the arbitrary minimum dutiable price system.Imported and locally produced CBUs will be subject to the same special sales tax treatment from 2007.Under the WTO, incentives based on export ratios may be removed.New incentives based on other criteria would apply.
The two main positive impacts of Vietnam’s WTO membership on foreign direct investment are:
Duty reductions – Import duties are considerably reduced for goods used as inputs for domestic production as well as private and government consumption.In many cases, import tariff rates on inputs for producing exports and other goods such as machinery and equipment have been significantly reduced during the WTO negotiation process.Moreover, exporters are refunded import duties on inputs used for producing exports.
Liberalization of the services market – Under WTO classification, provision of services will be divided into four modes:
Cross-border (e.g., electronic money transfer services between countries)
Abroad consumption (e.g., tourist services)
Commercial presence (e.g., foreign direct investment in services in Vietnam)
Movement of natural person (e.g., foreigners come and provide services in Vietnam)
Liberalization of the services sector, especially in modes 1and 4, will affect investment flows to Vietnam.Initially, the services sub-sectors that were once closed or restricted from foreign investment (such as distribution, transport, telecommunication, finance, etc.), will be largely liberalized despite some limited conditions and a transitional period of three to five years.
Vietnam is actually engaged in a multitude of trade covenants.Vietnam is a member of AFTA, the ASEAN-China Free Trade Association, the ASEAN-Korea Free Trade Association and is in the process of negotiating free trade agreements with Japan, India, Australia and New Zealand.
